Refinancing Guide: The What, Why, and How
July 6, 2020
We all have goals, and many times our current mortgage isn’t helping us to achieve them. In those times, refinancing your home loan may be the exact solution to get you back on track.
What is a Refinance?
Put simply, a mortgage refinance replaces your current home loan with a new one that replaces your mortgage debt, under new terms. When interest rates have improved in the market or you have developed equity in your home, a refinance can be a great option for you or your family.
Why Should You Refinance?
You should always have a goal in mind when you refinance your mortgage, and that goal will help your mortgage lender determine the right terms for your restructured loan.
That said, there are a handful of reasons to consider refinancing, such as:
Lower Monthly Payments
Perhaps the most common reason homeowners refinance their mortgage is to take advantage of lower monthly payments. This can be accomplished as a result of securing a lower interest rate (when available) or increasing the terms of your loan. Both can result in lower, more manageable monthly payments but be cautious as the latter will ultimately result in more interest over the life of the loan.
Reduce Interest Costs
When you refinance your loan to take advantage of a lower interest rate or reduced loan term, you’ll end up paying less money in interest costs which, may end up saving you tens of thousands of dollars over the life of your loan.
Pay Off Your Mortgage Faster
Perhaps your mortgage payment is already manageable but, you don’t like the idea that you’ll be paying it for another 20-30 years. When you refinance from a 30 year to a 15-year loan, you not only pay off the loan in half the time, you pay far less interest over the life of the loan. The only drawback is that your monthly payments tend to increase.
Take Cash Out For Other Purposes
When your home is worth more money than the loan you owe on it, you have equity. You can use this equity for your own purposes when you do what is called a cash-out refinance. A cash-out refinance can help you make home improvements, take advantage of investments, or use the money for other, long-term financial goals.
Switch Loan Products
A lot of times, the mortgage loan that helped you get into your home is not the best product for your current goals. For instance, an adjustable-rate mortgage may have gotten you into your home initially but, as the rate starts to increase, it may cause unnecessary financial stress. Additionally, getting rid of mortgage insurance (like on an FHA loan) might prove to be a cost-effective strategy, when the long-term savings are considered.
What’s Involved in a Refinance?
The steps you take to refinance your home loan aren’t very different from the steps you took to purchase your home.
Determine Your Refinance Goals
Whether you want to take cash-out, lower your monthly payment, or reduce your term from 30 to 15 years, it’s important to select the loan that best fits your objectives.
Pre-Approval
You’ve determined your goals and settled on a lender that can help you meet those goals. Now, it’s important to get pre-approved by providing some introductory information and pulling your credit.
Complete an Application
Once you’ve been pre-approved, the next step is to complete an application with your lender.
Provide Documentation
Just like with your home purchase, there is a lot of paperwork that is required to refinance your loan. Be prepared to provide documentation of:
- Income
- Debts
- Assets
- Identification
- Insurance validation
Appraisal
In order to determine the current value of your home, an appraisal will likely be required. Your lender will be able to set this up and assist with all the necessary communications.
Final Review and Approval
Once you’ve received the final estimates, reviewed the loan terms and all the necessary fees in your refinance, the loan will be submitted to underwriting for final approval. It may be necessary to resubmit some documentation at the behest of the underwriter but, rest assured that your loan is nearing completion.
Clear to Close
Congratulations, you’ve successfully refinanced your home loan. From here, you will continue to make payments under the new mortgage obligation, until the loan is paid off.
What Does it Cost To Refinance?
Unfortunately, refinancing your mortgage isn’t free. There are several fees to consider in the processing and handling of your new loan. The most common among those are:
- Application fees
- Origination fees
- Appraisal fees
- Closing costs
In general, the fees to refinance your home range from 3%-6% of the principal on your mortgage.
Choose The Mortgage Firm North Central Florida For Your Refinance
We all have goals, and many times our current mortgage isn’t helping us to achieve them. In those times, refinancing your home loan may be the exact solution to get you back on track.
Our loan officers are experienced in the processing and handling of your refinance. As a direct lender, we streamline the funding of your loan so that you can close more predictably and efficiently – leaving you with confidence in the process.